PM End of Week Market Commentary - 10/16/2016

davefairtex
By davefairtex on Sun, Dec 18, 2016 - 6:16am

On Friday gold rose +6.50 to 1136.80 on moderate volume, and silver climbed +0.12 to 16.14 on moderate volume also. It was a mild rally at the end of an unpleasant week for PM.

The primary news this week was the FOMC meeting on Wednesday, where the Fed raised rates 25 basis points as expected, but the Fed also surprised the market by projecting 3 rate increases for 2017. This surprise was great news for anyone long the dollar, which jumped +1.42 to a new multi-decade high of 102.92.  [Dollar turning into confetti anytime soon?  No.]

The dollar rally was not kind to the metals. The only positive note this week was platinum, which printed a strong bullish engulfing candle on Friday (75% chance of a low) that launched platinum back above its 9 EMA. The rest of the metals did quite poorly, with all other components falling. Is platinum's rally an outlier, or a “tell”? Its hard to say.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum $PLAT 1.19% 9.77% rising falling falling falling ema9 on 2016-12-16 2016-12-16
Gold $GOLD -2.12% 8.10% falling falling falling falling ma200 on 2016-11-08 2016-12-16
Copper $COPPER -4.05% 24.72% falling rising rising rising ema9 on 2016-12-12 2016-12-16
Silver $SILVER -4.58% 17.94% falling falling rising falling ema9 on 2016-12-14 2016-12-16
Senior Miners GDX -7.69% 43.03% falling falling falling falling ema9 on 2016-12-09 2016-12-16
Silver Miners SIL -8.59% 75.88% falling falling rising falling ema9 on 2016-12-14 2016-12-16
Junior Miners GDXJ -12.64% 58.91% falling falling rising falling ema9 on 2016-12-09 2016-12-16

Gold continued falling this week, making a new low to 1124.30. Friday's modest rally caused gold to print a “bullish harami” candle pattern which was actually not very bullish, with only a 14% chance of marking the low. To date, the few reversal patterns that gold has printed have been fairly low-rated, and have led to nothing but lower prices. Gold remains below its 9 EMA.

May rate-increase chances are at 34%.

This week, gold open interest rose by +7,308 contracts, up to 364k contracts total.

Silver moved sideways for much of the week, and then was hammered hard on Thursday, the day following the dollar-positive FOMC announcement. Silver lost 87 cents that day, making a new low to 15.92, briefly breaking below round number 16 support. Silver's very modest rally on Friday resulted in a spinning top candle print, which has an 18% chance of marking a low. Support at 16 looks to be relatively strong, but if the dollar continues to move higher, I'm not sure it will hold. The gold/silver ratio rose +1.77 to 70.43, with the big jump happening on Thursday.  That's bearish.

The miners sold off hard the day of the FOMC announcement, along with a gap down follow-through on Thursday. That said, Thursday's move was actually not all that dreadful, with the majority of the loss coming from the gap down. It felt to me as though there was a fair amount of stealth buying going on; Thursday volume was quite heavy, but once the gap down occurred, the price did not move lower. This tells me a lot of traders were capitulating – and an almost-equal number of traders were buying everything being sold. These are the footprints of big money establishing a position. Thursday's “opening black marubozu” was actually fairly bullish, with a 35% chance of marking the low. (Friday's spinning top was inconclusive). Candle code has been trained on thousands of examples, and it found this normally-bearish candle to be bullish, at least on Thursday. In contrast, the GDX:$GOLD ratio was hit hard, wiping out the recent bullish activity. Likewise, GDXJ:GDX was also pounded, making new multi-month lows. The ratios are clearly bearish this week.

USD

As mentioned, the buck was the fulcrum this week, with the FOMC announcement on Wednesday precipitating a +1.42 [+1.39%] rise to 102.92, breaking out to a new multi-decade high. The Euro was driven through support, falling -1.08 to 104.51, making a new low. If the Euro cannot recover here and continues to sell off, it will probably be quite bad for PM. You can see on the long term monthly Euro chart that there is not much support between Euro 105 and Euro 85 - maybe a little bit at round number 100 that dates back to 2003, but that's about it.

This sort of drop is entirely plausible if the Eurozone starts having more serious political problems. If this occurs, and western buyers don't decide that gold is the place to be during those troubled times, the resulting massive dollar rally (perhaps to 120?) would almost certainly cause gold to be smashed through $1000. I'm not trying to terrify anyone – but the Euro chart is on the cusp of a major breakdown, and this sort of breakdown has the potential to have a huge effect on prices of many things, most especially the dollar – and by extension, gold. Of course it is possible for gold and the buck to rally together, but that's not how things have been going recently.

US Equities/SPX

The US equity market fell -3.96 [-0.18%] to 2258.07, first making a new all time high to 2271 and then printing a (very bearish) swing high after the FOMC announcement on Wednesday. SPX remains above its 9 EMA, at least for now. VIX rose +0.45 to 12.20,

The sector map shows sickcare in the lead; sickcare spent most of the week rallying strongly, but it is fighting to emerge from a medium term downtrend. Homebuilders and Industrials did worst. Half of SPX has now dropped below the 9 EMA.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Healthcare XLV 1.06% -3.13% rising falling rising falling ma50 on 2016-12-13 2016-12-16
Utilities XLU 0.94% 11.31% rising rising rising rising ma50 on 2016-12-09 2016-12-16
Cons Staples XLP 0.02% 2.87% rising falling rising falling ma50 on 2016-12-09 2016-12-16
Energy XLE -0.12% 26.71% rising rising rising rising ema9 on 2016-11-30 2016-12-16
Technology XLK -0.12% 12.42% rising rising rising falling ma50 on 2016-12-07 2016-12-16
Telecom XTL -0.67% 25.18% rising rising rising rising ema9 on 2016-12-05 2016-12-16
Financials XLF -1.64% 19.42% falling rising rising rising ema9 on 2016-12-16 2016-12-16
Cons Discretionary XLY -1.92% 4.82% falling rising rising rising ema9 on 2016-12-16 2016-12-16
REIT RWR -1.97% 0.24% falling falling rising falling ema9 on 2016-12-14 2016-12-16
Materials XLB -2.10% 16.79% falling rising rising rising ema9 on 2016-12-16 2016-12-16
Industrials XLI -2.19% 18.39% falling rising rising rising ema9 on 2016-12-14 2016-12-16
Homebuilders XHB -2.62% 0.38% falling rising rising falling ema9 on 2016-12-15 2016-12-16
Gold Miners GDX -7.69% 43.03% falling falling falling falling ema9 on 2016-12-09 2016-12-16$

 

Gold in Other Currencies

This week, gold fell in every currency I track; gold in XDR fell -19.47. No rest for the weary.

Rates & Commodities

TLT fell just -0.31%, making a new low on Monday, and then more or less chopping sideways for the remainder of the week. TLT remains below its 9 EMA, although at this point it is mostly chopping sideways rather than plummeting, which is a mildly positive sign. The 20 year now yields 2.91%.

JNK fell -0.47%, with all of the losses coming after the FOMC meeting on Wednesday. It printed swing high on Wednesday, although it remains above all 3 moving averages. JNK continues to look a lot stronger than IEF/TLT.

CRB fell -0.29%, but managed to remain above all 3 moving averages. On the weekly chart, CRB continues to remain above the 9 and 50 weekly moving averages. Commodities continue to slowly recover off their lows set in early 2016.

Crude rose +0.76 to 52.24, first blasting higher above 54 following the non-OPEC production agreement last Saturday, but then falling back after meeting a wall of selling pressure. Buyers re-emerged on Thursday and Friday, keeping crude above its 9 EMA. It remains in an uptrend. Can oil conclusively break above the 52 level? It will have to absorb a whole lot of selling from the shale producers, who (from what I can tell) are desperate to renew their production hedges every time oil gets above 50.

Physical Supply Indicators

* I don't have SGE premium data; the reports I got suggested premiums above $40/oz.  I'll be able to update on Monday.  SGE site shuts down over the weekend, so if I don't catch it exactly on Friday, I miss the window to download prices.

* The GLD ETF tonnage on hand fell -20.46 tons, with 837 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1136.80 and silver closing of 16.14:

 PHYS 9.26 -0.98% to NAV [down]
 PSLV 6.12 -0.36% to NAV [down]
 CEF 11.44 -7.89% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for either gold or silver.

* Big bar premiums are lower for gold [1.93% for 100 oz bars in NYC], higher for silver [+3.02% for 1000 oz bars in NYC], and higher for silver eagles at +18.34% [NYC].

Futures Positioning

COT report covers trading through Dec 13th, when gold closed at 1160.10 and silver 16.96 – the day before the FOMC announcement.

In gold, commercials covered -5k shorts, while managed money bailed out of -4.7k longs. Short covering continues, but the pace has greatly slowed down. No doubt even more short covering happened following the FOMC announcement. Managed money short positions are starting to build too, with managed money adding +8.9k shorts just this week. We are starting to get enough managed money shorts for a real short-covering rally.

In silver, commercials added +4.2k shorts, while managed money added 3.5k longs. It appeared as though a reversal was possibly under way in silver – just before things tipped over and sank immediately following the FOMC announcement Wednesday. Still, there weren't enough managed money shorts in silver to set up a proper short-covering rebound.

Gold Manipulation Report

No meaningful spikes occurred this week.

Summary

This week was all about the FOMC and a dollar rally, which caused gold to drop once more. This time, silver and the miners joined the plunge, with all of the ratio indicators dropping relatively hard. Junior miners dropped more than seniors, and silver dropped more than gold. That's bearish. Platinum's rally was the only bright spot – that, and the stealth-buying of the miners after Thursday's gap down.

Gold COT report shows continuing short-covering by the commercials, and now managed money is actually building up a more significant short position. Its hard to know if we are there yet.

Gold and silver big bar shortage indicators still show no signs of shortage in the west; ETF premiums were mixed this week, and GLD's tonnage fell. In Shanghai, premiums continue to increase. At what point will physical buying overcome the paper selling in the west? That's hard to know. At some point, the west will run out of gold, but I believe that must first show up in premiums – and so far, it hasn't.

Check out your local gold shops.  Are premiums elevated?  Do they still have stock in the larger bars?

As has been the case now for weeks, what happens to PM is all about the dollar. And the Euro. Will the Euro plunge below 105 start to gain momentum? If so, the dollar could continue to blast higher, which would probably drag gold down below round number 1100. There is a whole lot of “air” below Euro 105.

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